World Bank cancels loan
Here is another international vote of no confidence in the credibility of the government of President Abdurrahman Wahid. The World Bank revealed in a statement put on its website early last week that it had canceled the second US$300 million tranche of its $600 million social safety net adjustment loan which was supposed to have been disbursed before the end of December.
The document did not explain why the decision on the loan cancellation was only made public more than three months after the drastic measure was taken. But the penalty seemed to have been imposed late in 2000 coinciding with the decision of the International Monetary Fund to delay the release of the third $400 million tranche of its $5 billion bailout fund for Indonesia.
Both multilateral institutions usually resort to such a painful measure only when its borrowing members fall extremely short of fulfilling most of the conditions attached to their lending programs. And the conditionality of their loans centers mainly on the implementation of mutually agreed reform measures.
However, the World Bank's move is especially painful because the $600 million loan that was approved in May 1999 during the B.J. Habibie administration was designed as a fast-disbursing, cash loan allocated especially to protect the poor from the worst impact of the 1997 economic crisis. In contrast with most other World Bank loans, the social-safety net lending program did not require local counterpart funding, a condition that has become extremely difficult for the government to meet due to its severely limited budgetary resources.
The World Bank did not explicitly cite a corrupt bureaucratic system as the main reason behind the loan cancellation, but the results of its review of the implementation of the first $300 million tranche, which was disbursed in January 2000, implicitly admitted poor governance as the main factor that prompted the drastic measure. It noted the slow pace of meaningful change in institutions and bureaucratic culture which rendered modest the impact of the aid on the poor.
Since the social-safety net has been on top of the World Bank's country-assistance strategy for Indonesia since 1998, the wastage caused either by inefficiency or outright malfeasance in the implementation of the first $300 million loan tranche must have been so large and pervasive as to compel the World Bank to resort to such a drastic measure as halting its top-priority program.
If the World Bank-funded poverty alleviation program was still so highly vulnerable to wastage and misuse, despite its multilayered monitoring and supervision system, then the level and extent of venality within the bureaucratic machinery must have been critically high.
Learning from the loss of more than 50 percent of the funds allocated for the social safety-net program in 1998, which was implemented entirely by the government, the World Bank's social safety-net program in 2000 was safeguarded by an overarching national structure which consisted of a government team, a joint government and civil society task force and a completely independent civil society monitoring team.
The innovative combination of government and civil society efforts to verify, monitor and control the program should have become the most effective system to ensure the success of the program. Yet, as the World Bank's painful decision shows, the program has to be discontinued to prevent greater losses. This also once again reinforces the findings of most international surveys that have put Indonesia among the most corrupt countries in the world.
The World Bank's loan cancellation is a tragedy indeed as it will deprive more than 50 million poor people from such basic needs as affordable rice, education and health services as well as basic infrastructure in rural areas.
What makes the tragedy even more heart-wrenching is the bitter fact that it was virtually caused by a pathetic administration that seems simply incapable of making any meaningful progress in developing a system of good governance with reasonable standards of accountability.